Beginning January 1, 2016, D.C. employers with 20 or more employees are required to offer commuter benefits to employees. The D.C. Law (D.C. Act 20-385) was introduced to encourage employees to choose public transportation or carpooling over driving to work alone.
Employers must provide at least one of the following commuter benefit programs to employees:
1. A pre-tax election program under which each covered employee is allowed to set aside pre-tax funds from each paycheck to pay his or her monthly transit pass or vanpool costs, up to the applicable limit on nontaxable transit pass and vanpool benefits under the Tax Code (expected to be $130/month in 2016). The law also refers here to bicycling costs, but the Tax Code does not allow bicycling costs to be paid via pre-tax elections.
2. An employer subsidy program under which the employer provides, at no cost to the covered employee and at the employee’s election, either transit passes on the public transit system used by the employee or reimbursement of the employee’s vanpool or bicycling costs up to an amount equal to the purchase price of transit passes for “equivalent trips” on the public transit system. The law does not expressly impose any upper or lower limits on this benefit, but the reference to “equivalent trips” suggests that under this option employers are supposed to provide transit passes covering each employee’s actual transit expenses or vanpool or bicycling cost reimbursements up to the same amount. If so, this could exceed the applicable limit on nontaxable benefits under the Tax Code (expected to be $130/month for transit pass and vanpool benefits and $20/month for bicycle benefits in 2016). It is not clear whether “bicycling costs” are intended to include the costs of using bike share programs like Capital Bikeshare: they certainly are “bicycling costs” in a general sense, but the IRS has ruled that such costs cannot be reimbursed tax-free under the Tax Code.
3. Employer-provided transportation at no cost to the employee in a vanpool or bus operated by or for the employer. The law defines “vanpool” here and elsewhere to be the same as the Tax Code’s definition of “commuter highway vehicle,” which includes not just vanpools used for commuting but also private buses and similar
vehicles as long as they are used for commuting. It is not clear whether the added phrase “or bus” is intended to give employer’s credit for other kinds of bus transportation, but the DC government’s “toolkit” suggests it isn’t: it describes this option as covering vanpools from outside of DC or shuttles from Metro stations, Park-and-Rides, major hubs or anywhere else from which employees are commuting. The law does not impose any upper or lower limits on this benefit,
either, but benefits in excess of the applicable limit on non-taxable vanpool benefits ($130/month in 2016) will be subject to tax. It would appear that the same program does not have to be provided to all employees, i.e., some employees may receive one program while other employees receive a different program.
Regulations addressing implementation and enforcement are expected in the future. Notably, the law itself states that the regulations may expand the scope of the law to cover employers with fewer than 20 employees. Regardless of whether such regulations are issued, starting January 1st, employers with 20 or more employees who fail to offer one of the three available options for benefits may face civil fines and penalties.1
Next Step for Employers
Employers in D.C. with 20 or more employees should establish a commuter benefits program that complies with this new law or review their current commuter benefits programs to ensure that they are compliant. All D.C. employers should watch for regulations to be issued in the future, which may expand the scope of this law to cover smaller employers, or may add or clarify certain requirements. For additional information about the law and its impact on your workforce, please contact one of the authors of this alert or the Hogan Lovells lawyer with who you work with.
1 The $130/month limit referenced above may be increased to $255/month, if Congress enacts the budget deal it is currently considering.